Global Policy Forum

By John Donnelly

A steep drop in private loans and foreign investments has slowed poverty-fighting efforts in poor countries and hindered many projects in middle-income nations, the World Bank said yesterday in its economic forecast for 2003.

The bank predicted a modest 2.5 percent global growth rate next year. But chief economist Nicholas Stern warned that the world economy remains fragile and that destabilizing factors such as a prolonged war in Iraq could lead to a global recession.

If the 2.5 percent figure holds, it would represent only a small increase over the past two years, a slump due in part to the aftermath of the Sept. 11 attacks, which slowed progress in many sectors and led to a fall in consumer confidence. In 2001, the global economy grew just 1.1 percent, while this year the estimate is 1.7 percent.

Looking at 2003, the report said that a US military attack on Iraq could raise oil prices to a temporary high of $45 a barrel. But the report also said that prices could fall relatively quickly after a war, to below $20 a barrel, as long as producers rush to fill the temporary loss of Iraq's 2 billion barrels per day.

The main point of the annual survey was to encourage rich countries to quickly remove trade barriers, a subject being debated in World Trade Organization discussions. It also encouraged poor countries to remove economic impediments by slashing tariffs, fighting corruption, improving regulatory systems, and working on free-trade agreements. Because the growth rate is expected to be sluggish, the task of removing those barriers is ''becoming increasingly urgent,'' the report said.

The report highlighted a sharp decline in foreign direct investment, from a high of $180 billion in 1998 to an estimated $140 billion in 2002. ''We're looking at the most precipitous fall in foreign direct investment in developing countries since the global recession of 1981-83,'' said Richard Newfarmer, lead author of the report.

While parts of Latin America, notably Argentina, experienced a major loss in foreign investment, the outlook was not uniformly dire. Countries in Asia, particularly China, continued to attract foreign investors.

In 2002, foreign investors sent $50 billion to China, according to Philip Suttle, the manager of the World Bank's international finance team. The 2002 figures are not yet compiled for the United States, but Suttle said that, for the first time in modern history, China may exceed the United States as the largest recipient of foreign investment this year.

''People are falling over themselves to put money into China at the moment,'' Suttle said. Such is not the case for some nations in Latin America and almost all of those in sub-Saharan Africa.

The report found that companies in Korea, Malaysia, and Thailand outperformed companies in India and China, in part because of lower trade restrictions and fewer administrative barriers. The greatest opportunity for poor countries, said Stern, ''is bringing down the trade barriers.''

One trade barrier fell yesterday. Chile and the United States reached an agreement for a free trade accord that will lift tariffs on more than 85 percent of goods from both countries in the first year. US Trade Representative Robert B. Zoellick said he hoped that the agreement could serve as a template for other deals in Central America early next year.

Perhaps the greatest single hindrance for poor countries is growing debt, officials said. In 1995, private capital loans outnumbered debt payments by $132 billion. But this year, debt payments from poor countries will be greater than private loans by $40 billion, the bank estimates. That represents a $172 billion loss to poor countries from 1995.

When officials added up the funds going into the poor world - the figure includes private capital flows, foreign direct investment, and official development assistance - they found that poor nations received $340 billion in 1995. This year, the estimate is $180 billion, or a drop of $160 billion in seven years.

For many countries, that will probably translate into a slowdown in improvements in infrastructure.

''In the current environment, many important projects - such as power, roads, or water system - simply won't be able to attract the necessary private capital,'' Newfarmer said. ''Governments may have no choice but to play a bigger role in financing some activities.''

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.